Opinion issued on February 7, 2008.
In The
Court of Appeals
For The
First District of Texas
NO. 01-07-01021-CV
IN RE BANC ONE INVESTMENT ADVISORS CORPORATION N/K/A JPMORGAN INVESTMENT ADVISORS, INC., BANK ONE NATIONAL ASSOCIATION N/K/A JPMORGAN CHASE BANK, NA, BANK ONE CORPORATION N/K/A JPMORGAN CHASE & CO., AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO N/K/A JPMORGAN CHASE BANK, NA, AND VICKY R. LITTLE, relators
Original Proceeding on Petition for Writ of Mandamus
MEMORANDUM OPINION
By petition for writ of mandamus, relators, Banc One Investment Advisors Corporation n/k/a JPMorgan Investment Advisors, Inc., Bank One National Association n/k/a JPMorgan Chase Bank, NA, Bank One Corporation n/k/a JPMorgan Chase & Co., American National Bank and Trust Company of Chicago n/k/a JPMorgan Chase Bank, NA, and Vicky R. Little (collectively the “Bank One Defendants”) challenge the trial court’s order of November 6, 2007, denying motion to compel arbitration and stay proceedings.
Background
In 2001, Real Party in Interest James H. Greer possessed valuable stock options worth several million dollars. Deutsche Bank and the Bank One Defendants approached Greer and suggested that, under their guidance, he establish a “tax shelter” to mitigate tax consequences from his large profits. Greer agreed, opening accounts and performing complex transactions according to Deutche Bank’s and the Bank One Defendants’ advice. However, the IRS disallowed the tax shelter, and Greer allegedly lost millions.
In 2004, Greer sued the Bank One Defendants for, among other things, fraud and breach of fiduciary duty. Pursuant to an arbitration agreement he signed with Deutsche Bank, Greer initiated arbitration proceedings against Deutsche Bank before the National Association of Securities Dealers (“NASD”) in 2005. The arbitration agreement provides, in relevant part:
I agree to arbitrate with you any controversies which may arise, whether or not based on events occurring prior to the date of this agreement, including any controversy arising out of or relating to any account with you, to the construction, performance or breach of any agreement with you, or to transactions with or through you, only before the New York Stock Exchange or the National Association of Securities Dealers Regulation, Inc., at my election.
In April 2005, Bank One filed a motion to stay proceedings in the trial court pending resolution of the arbitration with Deutsche Bank. Shortly thereafter, Deutsche Bank moved that the arbitration hearing should cease pending resolution of Greer’s suit against Bank One in civil court. The NASD granted Deutsche Bank’s motion, and the trial court denied Bank One’s motion.
White & Case LLP, Deutsche Bank’s counsel, independently as one of the Bank One Defendants co-defendants, moved to compel arbitration in January 2007. The trial court granted the motion. At the hearing to compel arbitration, the Bank One Defendants were asked if they intended to assert rights to arbitrate along with White & Case and Deutsche Bank. The Bank One Defendants responded that they would not seek arbitration. In October 2007, the Bank One Defendants filed their motion to compel arbitration and stay proceedings. Judge Halbach denied the motion in an order dated November 6, 2007.
Mandamus
Mandamus relief is available only to correct a “clear abuse of discretion” when there is no adequate remedy by appeal. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). Clear abuse of discretion occurs when a trial court “reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.” Id. (citing Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985) (orig. proceeding)). The reviewing court may not substitute its judgment for that of the trial court when reviewing factual issues. Id. at 839–40. Even if the reviewing court would have decided the issue differently, it cannot disturb the trial court’s decision unless it is shown to be arbitrary and unreasonable. Id. at 840.
The parties do not dispute that the Federal Arbitration Act (the “FAA”) governs this case. Because there is no right of interlocutory appeal under the FAA, review by petition for writ of mandamus is proper. Metro. Life Ins. Co. v. Lindsay, 920 S.W.2d 720, 722 (Tex. App.—Houston [1st Dist.] 1996, no writ).
Discussion
A. Arbitration
The Bank One Defendants contend that, even though they were nonsignatories to the arbitration agreement, they should be permitted to join the arbitration. They cite federal cases in which nonsignatories are joined in arbitration under the “concerted misconduct rule” of equitable estoppel, and they protest the alleged disparate treatment between themselves and White & Case. Greer responds that a recent Texas Supreme Court case governs the issues at hand and unequivocally supports the trial court’s decision denying compelling arbitration. See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191 (Tex. 2007). Additionally, Greer distinguishes the factual and legal circumstances surrounding White & Case’s successful motion to compel arbitration from those surrounding the Bank One Defendants’ failed motion.
Generally, only signatories to an arbitration agreement are bound by the agreement. Brown v. Pac. Life Ins. Co., 462 F.3d 384, 398 (5th Cir. 2006). However, federal courts recognize equitable estoppel as a means for nonsignatories to join arbitration. Merrill Lynch, 235 S.W.3d at 191. Equitable estoppel offers two variants that nonsignatories may invoke to compel arbitration with a signatory. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000). The first variant, direct benefit equitable estoppel, occurs when nonsignatories seek a direct benefit from a contract with an arbitration clause. Id. The second variant, interdependent and concerted misconduct, occurs when misconduct claims asserted in a trial court and in arbitration are identical and intertwined. Id. Here, the Bank One Defendants assert interdependent and concerted misconduct equitable estoppel exclusively.
While the Texas Supreme Court has recognized equitable estoppel on a few occasions, it has never compelled arbitration based solely on interdependent and concerted misconduct. Merrill Lynch, 235 S.W.3d at 191. Merrill Lynch uses the United States Supreme Court’s conservative view of the FAA as guidance. Id. at 192. (Arbitration “is a matter of consent, not coercion,” and the FAA “does not require parties to arbitrate when they have not agreed to do so. . . .”). Moreover, Merrill Lynch notes that the common transactional origin of two claims does not necessitate arbitration. Id.
Here, the Bank One Defendants seek arbitration solely on interdependent and concerted misconduct. They offer federal court precedent supporting concerted misconduct as a means to compel arbitration, but only address the alleged inapplicability of Merrill Lynch in a footnote. Specifically, the Bank One Defendants first contend that the arbitration agreement between Deutsche Bank and Greer is broader than the arbitration agreement at issue in Merrill Lynch. Second, they point out that they have no contract with Greer, while the Merrill Lynch plaintiffs had executed agreements with the nonsignatories but purposely had omitted arbitration clauses. Third, the Bank One Defendants note mention of “close relationship” in Merrill Lynch, a test distinct from concerted misconduct and used by some federal courts to permit arbitration by nonsignatories. “Close relationship” occurs in “instances of strategic pleading by a signatory who, in lieu of suing the other party for breach, instead sues that party’s nonsignatory principals or agents for pulling the strings.” Id. at 194.
First, the arbitration agreements in the matter at issue and in Merrill Lynch both limit the arbitration to the signatories. Second, Greer’s lack of contract with the Bank One Defendants does not favor arbitration. In fact, the lack of any contract between Greer and the Bank One Defendants underscores their separation and diminishes the applicability of coerced arbitration. Third, the “close relationship” condition is inapplicable. It does not conform to the facts of the case because Greer has not sued a nonsignatory principal or agent.
The Bank One Defendants did not attempt to compel arbitration until two-and-one-half years after Greer filed suit against them. They are not signatories to the arbitration agreement, and the trial court’s refusal to apply the “concerted misconduct” equitable estoppel avenue to arbitration does not amount to a clear abuse of discretion. While federal circuit courts adopt a moderately generous interpretation of equitable estoppel, the two courts to which we must defer, the Texas Supreme Court and the U.S. Supreme Court, adopt a conservative approach supporting denial. Accordingly, we decline to issue mandamus on this ground.
B. Stay of Proceedings
Merrill Lynch weakens the Bank One Defendants’ mandamus to compel arbitration, but supports their mandamus to stay proceedings. Id. at 195. According to Merrill Lynch, “when an issue is pending in both arbitration and litigation, the Federal Arbitration Act generally requires the arbitration to go forward first.” Id. The court in Merrill Lynch denied arbitration for two nonsignatories to the arbitration agreement, but granted their mandamus to stay proceedings pending arbitration because of the similarity of the issues involved in arbitration and the trial court. Id. at 196.
In Merrill Lynch, the nonsignatories who failed in seeking arbitration but succeeded in staying proceedings were Merrill Lynch Trust and Merrill Lynch Life. Id. at 188. These nonsignatories were affiliates of Merrill Lynch, the signatory to the arbitration. Merrill Lynch articulates one standard to determine whether litigation should be stayed: if collateral litigation addresses the same issues as arbitration, thus threatening to render the arbitration moot, the litigation must abate pending the arbitration. Id. at 195–96. This conforms with the policy guiding the Federal and Texas Arbitration Acts. Id. at 195. In the case at hand, many of the same issues are addressed in litigation and arbitration. The fact that the Bank One Defendants are nonsignatories to the arbitration agreement is irrelevant. Accordingly, the trial court abused its discretion in denying the Bank One Defendants’ motion to stay litigation.
ConclusionWe hold that the trial court did not abuse its discretion by denying the motion to compel arbitration and that it abused its discretion by denying the motion to stay litigation. The writ will only issue if the trial court fails to act promptly in accord with this Opinion. We overrule all pending motions as moot. The temporary stay of all trial court proceedings entered on January 14, 2008, remains in effect until the resolution of arbitration between Greer and Deutsche Bank.
George C. Hanks, Jr.
Justice
Panel consists of Justices Nuchia, Hanks, and Higley.